Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.

To counter this, the U.S. government has been running massive deficits, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, the same old prescription since donkey’s ears.

But the stimulus, apart from being slow and inefficient, has simply not been enough to offset the fall in consumer spending.

For its part, the Federal Reserve has been busy propping up all assets—including Treasuries—by way of “quantitative easing”.

The Fed is terrified of the U.S. economy falling into a deflationary death-spiral: Lack of liquidity, leading to lower prices, leading to unemployment, leading to lower consumption, leading to still lower prices, the entire economy grinding down to a halt. So the Fed has bought up assets of all kinds, in order to inject liquidity into the system, and bouy asset price levels so as to prevent this deflationary deep-freeze—and will continue to do so. After all, when your only tool is a hammer, every problem looks like a nail.

But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation—it certainly has not turned the deflationary environment into anything resembling inflation.

Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right?

Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation.

Most people dismiss the very notion of hyperinflation occurring in the United States as something only tin-foil hatters, gold-bugs, and Right-wing survivalists drool about. In fact, most sensible people don’t even bother arguing the issue at all—everyone knows that only fools bother arguing with a bigger fool.

A minority, though—and God bless ’em—actually do go ahead and go through the motions of talking to the crazies ranting about hyperinflation. These amiable souls diligently point out that in a deflationary environment—where commodity prices are more or less stable, there are downward pressures on wages, asset prices are falling, and credit markets are shrinking—inflation is impossible. Therefore, hyperinflation is even more impossible.

This outlook seems sensible—if we fall for the trap of thinking that hyperinflation is an extention of inflation. If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls—then it would seem to be the case that, in our current deflationary economic environment, hyperinflation is not simply a long way off, but flat-out ridiculous.

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.

Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy.

This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.

But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)

It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—

—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.

In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

So this is how hyperinflation will happen:

One day—when nothing much is going on in the markets, but general nervousness is running like a low-grade fever (as has been the case for a while now)—there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil.

This will jiggle Treasury yields, as asset managers will reduce their Treasury allocations, and go into the pressured commodity, in order to catch a profit. (Actually it won’t even be the asset managers—it will be their programmed trades.) These asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell.

It won’t be the volume of the sell-off that will pique Bernanke and the drones at the Fed—it will be the timing. It’ll happen right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields—they want to maintain low yields in order to discourage deflation. But they’ll also want to keep the Treasury cheaply funded. QE-lite has already set the stage for direct Fed buys of Treasuries. The world didn’t end. So the Fed will feel confident as it moves forward and nips this Treasury yield jiggle in the bud.

The Fed’s buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries into the Fed’s waiting arms. This dumping of Treasuries won’t be out of fear, at least not initially. Most likely, in the first 15 minutes or so of this event, the sell-off in Treasuries will be orderly, and carried out with the idea (at the time) of picking up those selfsame Treasuries a bit cheaper down the line.

However, the Fed will interpret this sell-off as a run on Treasuries. The Fed is already attuned to the bond markets’ fear that there’s a “Treasury bubble”. So the Fed will open its liquidity windows, and buy up every Treasury in sight, precisely so as to maintain “asset price stability” and “calm the markets”.

The Too Big To Fail banks will play a crucial part in this game. See, the problem with the American Zombies is, they weren’t nationalized. They got the best bits of nationalization—total liquidity, suspension of accounting and regulatory rules—but they still get to act under their own volition, and in their own best interest. Hence their obscene bonuses, paid out in the teeth of their practical bankruptcy. Hence their lack of lending into the weakened economy. Hence their hoarding of bailout monies, and predatory business practices. They’ve understood that, to get that sweet bail-out money (and those yummy bonuses), they have had to play the Fed’s game and buy up Treasuries, and thereby help disguise the monetization of the fiscal debt that has been going on since the Fed began purchasing the toxic assets from their balance sheets in 2008.

But they don’t have to do what the Fed tells them, much less what the Treasury tells them. Since they weren’t really nationalized, they’re not under anyone’s thumb. They can do as they please—and they have boatloads of Treasuries on their balance sheets.

So the TBTF banks, on seeing this run on Treasuries, will add to the panic by acting in their own best interests: They will be among the first to step off Treasuries. They will be the bleeding edge of the wave.

Here the panic phase of the event begins: Asset managers—on seeing this massive Fed buy of Treasuries, and the American Zombies selling Treasuries, all of this happening within days of a largish Treasury auction—will dump their own Treasuries en masse. They will be aware how precarious the U.S. economy is, how over-indebted the government is, how U.S. Treasuries look a lot like Greek debt. They’re not stupid: Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization: The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed.

Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy.

So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”

Note how it will not be China or Japan who all of a sudden decide to get out of Treasuries—those two countries will actually be left holding the bag. Rather, it will be American and (depending on the time of day when the event happens) European asset managers who get out of Treasuries first. It will be a flash panic—much like the flash-crash of last May. The events I describe above will happen in a very short span of time—less than an hour, probably. But unlike the event in May, there will be no rebound.

Notice, too, that Treasuries will maintain their yields in the face of this sell-off, at least initially. Why? Because the Fed, so determined to maintain “price stability”, will at first prevent yields from widening—which is precisely why so many will decide to sell into the panic: The Bernanke Backstop won’t soothe the markets—rather, it will make it too tempting not to sell.

The first of the asset managers or TBTF banks who are out of Treasuries will look for a place to park their cash—obviously. Where will all this ready cash go?

Commodities.

By the end of that terrible day, commodites of all stripes—precious and industrial metals, oil, foodstuffs—will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar (that will happen in the days and weeks ahead)—it will happen because once Treasuries are not the sure store of value, where are all those money managers supposed to stick all these dollars? In a big old vault? Under the mattress? In euros?

Commodities: At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market—just as Treasuries were perceived as the only sure store of value, once so many of the MBS’s and CMBS’s went sour in 2007 and 2008.

It won’t be commodity ETF’s, or derivatives—those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ’08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-’cause-it’s-there commodities. By the end of the day of this panic, commodities will have risen between 50% and 100%. By week’s end, we’re talking 150% to 250%. (My private guess is gold will be finessed, but silver will shoot up the most—to $100 an ounce within the week.)

Of course, once commodities start to balloon, that’s when ordinary citizens will get their first taste of hyperinflation. They’ll see it at the gas pumps.

If oil spikes from $74 to $150 in a day, and then to $300 in a matter of a week—perfectly possible, in the midst of a panic—the gallon of gasoline will go to, what: $10? $15? $20?

So what happens then? People—regular Main Street people—will be crazy to buy up commodities (heating oil, food, gasoline, whatever) and buy them now while they are still more-or-less affordable, rather than later, when that $15 gallon of gas shoots to $30 per gallon.

If everyone decides at roughly the same time to exchange one good—currency—for another good—commodities—what happens to the relative price of one and the relative value of the other? Easy: One soars, the other collapses.

When people freak out and begin panic-buying basic commodities, their ordinary financial assets—equities, bonds, etc.—will collapse: Everyone will be rushing to get cash, so as to turn around and buy commodities.

So immediately after the Treasury markets tank, equities will fall catastrophically, probably within the next few days following the Treasury panic. This collapse in equity prices will bring an equivalent burst in commodity prices—the second leg up, if you will.

This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.

This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.

Right now, I’m guessing that sensible people who’ve read this far are dismissing me as being full of shit—or at least victim of my own imagination. These sensible people, if they deign to engage in the scenario I’ve outlined above, will argue that the government—be it the Fed or the Treasury or a combination thereof—will find a way to stem the panic in Treasuries (if there ever is one), and put a stop to hyperinflation (if such a foolish and outlandish notion ever came to pass in America).

Uh-huh: So the Government will save us, is that it? Okay, so then my question is, How?

Let’s take the Fed: How could they stop a run on Treasuries? Answer: They can’t. See, the Fed has already been shoring up Treasuries—that was their strategy in 2008—’09: Buy up toxic assets from the TBTF banks, and have them turn around and buy Treasuries instead, all the while carefully monitoring Treasuries for signs of weakness. If Treasuries now turn toxic, what’s the Fed supposed to do? Bernanke long ago ran out of ammo: He’s just waving an empty gun around. If there’s a run on Treasuries, and he starts buying them to prop them up, it’ll only give incentive to other Treasury holders to get out now while the getting’s still good. If everyone decides to get out of Treasuries, then Bernanke and the Fed can do absolutely nothing effective. They’re at the mercy of events—in fact, they have been for quite a while already. They just haven’t realized it.

Well if the Fed can’t stop this, how about the Federal government—surely they can stop this, right?

In a word, no. They certainly lack the means to prevent a run on Treasuries. And as to hyperinflation, what exactly would the Federal government do to stop it? Implement price controls? That will only give rise to a rampant black market. Put soldiers out on the street? America is too big. Squirt out more “stimulus”? Sure, pump even more currency into a rapidly hyperinflating everyday economy—right . . .

(BTW, I actually think that this last option is something the Federal government might be foolish enough to try. Some moron like Palin or Biden might well advocate this idea of helter-skelter money-printing so as to “help all hard-working Americans”. And if they carried it out, this would bring us American-made images of people using bundles of dollars to feed their chimneys. I actually don’t think that politicians are so stupid as to actually start printing money to “fight rising prices”—but hey, when it comes to stupidity, you never know how far they can go.)

In fact, the only way the Federal government might be able to ameliorate the situation is if it decided to seize control of major supermarkets and gas stations, and hand out cupon cards of some sort, for basic staples—in other words, food rationing. This might prevent riots and protect the poor, the infirm and the old—it certainly won’t change the underlying problem, which will be hyperinflation.

“This is all bloody ridiculous,” I can practically hear the hyperinflation skeptics fume. “We’re just going through what the Japanese experienced: Just like the U.S., they went into massive government stimulus—hell, they invented quantitative easing—and look what’s happened to them: Stagnation, yes—hyperinflation, no.”

That’s right: The parallels with Japan are remarkably similar—except for one key difference. Japanese sovereign debt is infinitely more stable than America’s, because in Japan, the people are savers—they own the Japanese debt. In America, the people are broke, and the Nervous Nelly banks own the debt. That’s why Japanese sovereign debt is solid, whereas American Treasuries are soap-bubble-fragile.

That’s why I think there’ll be hyperinflation in America—that bubble’s soon to pop. I’m guessing if it doesn’t happen this fall, it’ll happen next fall, without question before the end of 2011.

The question for us now—ad portas to this hyperinflationary event—is, what to do?

Neanderthal survivalists spend all their time thinking about post-Apocalypse America. The real trick, however, is to prepare for after the end of the Apocalypse.

The first thing to realize, of course, is that hyperinflation might well happen—but it will end. It won’t be a never-ending situation—America won’t end up like in some post-Apocalyptic, Mad Max: Beyond Thuderdome industrial wasteland/playground. Admittedly, that would be cool, but it’s not gonna happen—that’s just survivalist daydreams.

Instead, after a spell of hyperinflation, America will end up pretty much like it is today—only with a bad hangover. Actually, a hyperinflationist spell might be a good thing: It would finally clean out all the bad debts in the economy, the crap that the Fed and the Federal government refused to clean out when they had the chance in 2007–’09. It would break down and reset asset prices to more realistic levels—no more $12 million one-bedroom co-ops on the UES. And all in all, a hyperinflationist catastrophe might in the long run be better for the health of the U.S. economy and the morale of the American people, as opposed to a long drawn-out stagnation. Ask the Japanese if they would have preferred a couple-three really bad years, instead of Two Lost Decades, and the answer won’t be surprising. But I digress.

Like Rothschild said, “Buy when there’s blood on the streets.” The thing to do to prepare for hyperinflation would be to invest in a diversified hard-metal basket before the event—no equities, no ETF’s, no derivatives. If and when hyperinflation happens, and things get bad (and I mean really bad), take that hard-metal basket and—right in the teeth of the crisis—buy residential property, as well as equities in long-lasting industries; mining, pharma and chemicals especially, but no value-added companies, like tech, aerospace or industrials. The reason is, at the peak of hyperinflation, the most valuable assets will be dirt-cheap—especially equities—especially real estate.

I have no idea what will happen after we reach the point where $100 is no longer enough to buy a cup of coffee—but I do know that, after such a hyperinflationist period, there’ll be a “new dollar” or some such, with a few zeroes knocked off the old dollar, and things will slowly get back to a new normal. I have no idea the shape of that new normal. I wouldn’t be surprised if that new normal has a quasi or de facto dictatorship, and certainly some form of wage-and-price controls—I’d say it’s likely, but for now that’s not relevant.

What is relevant is, the current situation cannot long continue. The Global Depression we are in is being exacerbated by the very measures being used to fix it—stimulus is putting pressure on Treasuries, which are being shored up by the Fed. This obviously cannot have a happy ending. Therefore, the smart money prepares for what it believes is going to happen next.

I think we’re going to have hyperinflation. I hope I have managed to explain why.

As far as Japan goes, I think they only managed to delay the inevitable mass inflation as their savings have been drained by years of irresponsible fiscal policies. With little savings to back up that huge government debt, they are now in for either default or print as well.

As for hyperinflation in US, it will happen but not for very long as they'd quickly switch back to gold standard to end the madness as by then even the dumbest politicians would scream for gold standard to cover their behind.

Massive Deflation will happen BEFORE Hyperinflation because the Fed CANNOT purchase all the debt out there. The author is making the ASSumption that the Fed is in control of everything financial. Events of the last couple of years just prove otherwise and Remember the ratio of "debt" to "cash in circulation" is 50:1. I believe that nobody is bigger than the market and ultimately the market wins. Politics inflate and Markets deflate. The DEBT bubble has more latent deflationary power than all the Fed's ability to print. The Fed is a pimple on the ass of a $100+ trillion dollar debt bubble and Bernanke is the prick that will burst it. A dash for the exits from any large bond holder will be enough to raise interest rates at the long end (remember the Fed does not control the long end, it can only influence it over the short term) making the debt burden untenable. The spread between the long and short end will widen incredibly to a point where borrowing will cease and Cash will be king. After a period where a significant amout of existing debt has been reconciled via default, restructuring or paydown, it might be politically expedient to inflate the rest but I doubt it. I think once borrowing and lending cease, the Fed will be forced to make the dollar a hard currency in order to attract capital to our shores.

The dollar is NOT backed by anything (it is fiat) but is a debt instrument. It is a Debt based fiat currency. There aren't enough dollars to satisfy the outstanding debt. What is it that you don't understand about debt:cash ratio of 50:1? Debt/credit is not the same as cash.

What other liquid assets are there to buy? The world is drowning in dollars. CB's need the liquidity for a myriad of reasons. The debts of the world are net denominated in dollars. How are they going to pay those debts back? Yen? Revenues or no revenues, they will covet the dollars until they can't.

Lord spare us from would-be Italian filmmakers and writers who, with limited market experience, somehow think they are smarter than Fed, 0 Advisers and Wall Street, who already made a muck of things with their failed national socialist central planning agenda.

There is absolutely no hyperfinflation evident like the Revolutionary War Continentals or Civil War Greenbacks. Zero. Zilch. No hedge.

M3 is -8%, the adjusted monetary base growth is -90%, total credit is declining at -9%, the real cost of mortgage money is the -35% decline in real estate plus the nominal 5% on mortgages, or 40%, and the money multiplier is less than 1, losing 15 cents for each additional dollar the Fed creates trying to prop up dead mortgages and insolvent Treasuries.

The Fed well knows if it monetizes all Treasury liquiditions, every banker, CEO or CFO will be dragged out of their corporate jet easy chair and crashed, defenestrated or piked.

Rather, the tipoff to any repudiation of the dollar will be interest rates going crazy as people sell everything in a mad dash scramble for cash.

Every single hyperinflation was preceded by runaway interest rates, from Argentina to Zimbabwe.

Meanwhile the 83 cent currency-weighted dollar is targeting 115 after a respite from 70.70 and 80.08 lows, still shy of 120 in 2001 before endless imperial wars became neoCon policy for both parties with their CIA candidates...

Sorry, but by your "Lord spare us from" comment I was under the apparently silly impression that you didn't like non-PhD Economists. I'll take them any day over those with PhD's. That includes the disparaged "Italian filmmakers and writers ... with limited market experience". Even a monkey with a dartboard is probably preferable.

Fed, 0 Advisers and Wall Street, who already made a muck of things with their failed national socialist central planning agenda.

Usually, integrity and values more important than intelligence.

Anyone who understands Henry Hazlitt's Economics in One Lesson, may appreciate better economics than most PhD government economists, who create more blowback with central planning, than common sense practical Constitutional workable economic solutions like uniform taxes, gold and silver money, limited government and the protection of private property.

Anyone who thinks they can predict the markets to a T is kidding themeselves, as ZH comments and 0 Economists proved time and again, with their failed No more than 8% unemployment forecast...

The US hyperinflation will be accompanied by runaway interest rates, as the Fed becomes the only purchaser of Treasurys. I'm betting they won't stop before they destroy the dollar, as if they do make any attempt even to slow down the rate of purchase, it will cause a deflationary crash to appear immediately, which will cause them to panic and open the spigots wide.

well who buys the treasuries besides the FED during this dump off? Why does the FED have to buy them? They make the market since they are the only bidder. So they can IGNORE all the ones the banks and asset managers are trying to dump... NO SALE.. BUT the price of the new treasuries can continue as before since the buying is totally rigged anyway...

That is the best way I have seen that stated. People just do not get that though. I tell people all the time that everything down to legal tender laws will be, as a previous commenter said, defenestrated, meaning "thrown out the window". We are so darn crafty to be ahead of the wave of people who will be blind-sided by all of this, but even most on this forum do not understand that the rules are optional right now--and they will certainly not be followed during ANY kind of destabilization. People think they will be able to use dollars to pay for anything? Including a mortgage? Nope. The bank is just going to say, "We'd rather take your house/land/car/whatever". This will get very ugly if/when it happens.

Aren't you over stating things? It doesn't take everyone to dump their treasurys to cause a collapse, no more than it takes a few traders to pump up a stock. There will likely be enough buyers and sellers to crash the treasury bond market.

Dude...let's take a step back and look at this. Deflationists seem to miss the forest for the trees.

The USG is the most heavily indebted entity on the planet. How would THEY be able to tolerate deflation? It'd kill them as surely as it nearly killed every levered player in 2008.

The USG can incontrovertibly not repay ITS debts. How the hell can the FRN maintain worth in the face of that? I understand that the "math" says that the FRN becomes more worthful as deflation sets in, but this simply defies any common sense or intelligence, because the FRN is the note of a bankrupt sovereign and a bankrupt central bank. Only in bizarro world can that become more worthful.

Eventually as deflation continues to grind, confidence in the FRN will evaporate. Military or not. Nukes or not. Reserve currency or not. And then it is all over in a heartbeat.

Is that TODAY? No. Obviously not. Is it coming? Of course, just as surely as a Pound Sterling is a fraction of a pound now (11 pounds to the ozt of Ag) despite the UK having suffered "deflation" in the 1930s and god remembers how many wars and the South Seas bubble and all that shit along the way.

The Pound's march toward ever-smaller fractions of an ACTUAL pound of sterling silver has been RELENTLESS. So shall it be with the dollar. By hook or by crook man.

Study freakin history. Deflation precedes devaluation as surely as night follows day. It is the ONLY way to make the math work. I marvel at precious dollar FRNbugs, I really do, thinking that this time will be different from every other time in history and the FRN will simply live forever. It won't.

So, you can either prepare now for that or try to be a vulture and pick up wallets and cellphones and watches DURING the panic stampede out of the burning nightclub. FRNbugs must fancy that there is some exit that the rest of the patrons don't know about, or that they are fireproof, or Batman.

I can tell by that comment that you have a mind that is not well suited for investing. You are one of those people that cant precive time. Your mind is always in the now, it is stuck there. You are fucked up

Overheated, not one bit, gold doesn't change in value (much). Saying that gold has gone from 500 to 1200 is really saying the USD lost value. I was long PM's to be short USD, but I don't think USD will lose anymore value over the next few years due to a reduced supply of dollars (i.e. deflation).

My current shorts on PM's (among other shorts) are a way to be long dollars against something of constant value. It really says nothing about my view of gold.

While I hold austrian school in high regard I don't think they got everything right. Specifically I disagree with their definition of money. If you want to calculate real interest rates I think M3 is closest to the true definition of money. We'll see shortly, if you use M1 or M2 or TMS you're going to come to the conclusion that real interest rates are low or negative, in which case long gold would be a great idea. I use something close to M3 which leads me to the conclusion that real interest rates are positive (and pretty high), which tells me I should be long USD.

Sid, I'd be interested to hear what you have to say about gold vs euro. Currently, gold seems to be in perfect negative correlation with the euro. Does that mean that real euro interest rates are negative?

"I can tell by that comment that you have a mind that is not well suited for investing. You are one of those people that cant precive time. Your mind is always in the now, it is stuck there. You are fucked up"

I am not in a position to comment, but that may be the funniest thing to come out of your spitzer in a while. LMAO

Yes, and this is because modern economic ideology does not appreciate the fact that the value of money is determined by each monetary units energy value (the slice of the energy pie, energy consumption that allows the production and exchange of goods and services within an economy).

Deflation is a loss of energy value per monetary unit (purchasing power) just as inflation is.

Both are a loss of energy value per monetary unit as a result of the increase (inflation) or decrease (deflation) in the total supply of monetary units within an economy, without a relative increase or decrease in the supply and consumption of energy within an economy (as a result of overproduction or as a result of a nominal increase in the price of energy, pick your cause, energy supply or demand?).

However, it is only through the destruction of these non existent fantasy monetary units known as credits that gives the word deflation any meaning to us at all. Yes, when credit units are destroyed, the real energy value that each credit "represented" is transferred to the pure money supply.

This increase in the energy value of the base money supply via deflation can only be maintained if it once again leads to a sufficient increase in economic activity (energy consumption) that allows the total money supply to return to its previous energy/credit equilibrium and within a time frame that does not lead to a further serious fall in economic activity (reduced economic activity=reduced energy consumption per monetary unit= less energy value/mon-unit=inflation).

But, if the destruction of debt on balance sheets does not occur allowing asset prices to fall to regain a monetary energy value equilibrium that leads to real economic growth (energy consumption and so increased demand for credit units), people will begin to lose faith in ever regaining the market value paid for the assets they purchased with credit.

Hyperinflation is as much as a result of a loss in faith of asset values as it is the loss of faith in the value of the currency. Obviously, this trend is picking up momentum.

I rushed this explanation but I hope it made sense to someone besides myself and Frederick Soddys ghost. Hyperinflation is assured unless the public has trust that the assets they purchased with credit will regain the previous real market value, or unless uncle Ben can somehow increase the supply and thus lower the nominal price of energy to the point that sustained the previous two decades of credit bubble growth (economic growth can only be produced through an increase in energy consumption, or an icrease in energy efficiency)

Oh, and Mr. Lira mentioned the distribution of credits/ration cards . THAT IS THE END GAME! And let me add that these credits will be given purchasing power not by the energy value each credit buys, but by the carbon units each credit buys. Welcome to the new world folks, if we don't blow the world to hell first.

I have some issues with the reasons you think people will lose faith in the currency unit. The spenders in the closed economy will not have as much of an effect on the loss of value of the unit of currency as the holders of debt denominated in the currency will.The debt holders will get the ball rolling before the peasants in the closed economy knew what happened.

This is after a few glasses of wine, so please be gentle (I realize that's not possible on ZH).

Based on your first sentence, are you assuming "energy" = consumption towards some production of a "useful asset"? i'm a bit of a plebe, but if that's your definition of "energy," then doesn't pretty much the consumption of "pure entertainment" shrink your "energy pie?" And if that's the case, don't things like virtual goods accelerate deflation at an even more rapid pace, assuming they gain scale (give a signal) w/o mass adoption (not sustainable)? Sounds like our economy for the past n years...but I'm a plebe.

No, I think he has a point.
Inflation: economy running too hot.
Hyper-inflation: everyone trying to get out of fiat currency.
The trigger could be widespread collapse of CRE, causing a domino of regional bank failures, the FDIC is overwhelmed and payoffs are slow.
People withdraw from weak banks, the domino becomes a firestorm, and we've reached the 3rd gate of financial Hell.

Inflation is like when you pour a little more water into the glass and thereby increase the potential energy. Hyperinflation is when you break the glass and find yourself awash in cash that you wish could be contained rather than simply sloshing all around anything that will hold it.

Wait ... maybe inflation is like an electron jumping from one orbit to another ... same mass, but perhaps a different charge to that atom. Hyperinflation is when the whole atom breaks apart.

Maybe you could tell us how many dollars are actually in circulation, as opposed to virtual credits on the internet that can disappear with the flick of a switch?

Hint: currently a whole lot lot less than inflationary amounts, less than a trillion in a $14 T GDP.

In fact, the average life of a paper dollar is 21 months.

The reason Jefferson and other founding fathers feared Central Banks was their ability to inflate the economy with debt, and then secretly deflate and foreclose it for controlling ownership.

That's what the IMF and World Bank did with a large part of the world, coming soon to a country near US.

Bailouts and stim programs only accelerate the process.

Every inflation since 1776 relied on the dollar as de facto currency when times got tough and dollars got scarce. Argentina, China, Germany, Hungray, Japan, Mexico, Thailand, Vietnam and Zimbabwe were no exception.

Assuming the Fed can and will print its way out of trouble indefinitely might be quite an expensive portfolio mistake.

Currently, all money supplies are slowing or contracting, and the USD is targeting 115, hardly the harbinger of inflation, let alone hyperinflation...

As far as Japan goes, I think they only managed to delay the inevitable mass inflation as their savings have been drained by years of irresponsible fiscal policies. With little savings to back up that huge government debt, they are now in for either default or print as well.

"I think everybody here would have followed him." As in everybody here on ZH? Or everybody in the US?

Perhaps so, but "Everybody" is a bit of a stretch, isn't it? Even now, I have trouble reconizing any authority which is dishonest, coercive, and divisive, and must wrap everything in fear to chase its people into the loving arms of the high priests, who will make it all magically go away.

I believe that people so depise Hitler, in hindsight, because they fear their own capacity to follow such a man. This is the real horror. Even still, there were some in Hitler's own inner circle, who hated, and tried to destroy him.

of course the lemmings in this country would follow him. These downies don't care about policy, they just want a show, they want charisma, Hitler would have them all chanting, in unison:

Ja wir können

Ja wir können

Ja wir können

!! I used google translator, so I don't know if it's correct, but you get the idea. You can't expect much out of large groups of people, more specifically, populations of nations. Address them individually or in smaller groups, you might get somewhere --otherwise, it's all about herding them in the direction you want, and you do it by song & dance, lightshows, entertain them and speak with a silver tongue, and they'll love whatever you tell them, they'll follow you anywhere, eagerly accept any policy.

Just say that you'll save them, or protect them, ease their pains, whatever, just make it sound good--the wide-eyed masses will give you anything.

Um..I think the hyperinflation event in Weimar Germany had a little bit to do with industrialists in the Ruhr Valley who were blocking wage/labor reforms and ended up getting their industrial heartland occupied by the French - which hampered their ability to pay reparations and thus caused the system set up by the US to go haywire. Slightly different situation now. Yes, I agree that a hyperinflation event is possible in the US - but not for the same reasons as Weimar.

Also sorry to be contrary on your analysis of everyone following Hitler in the states - that was also just not true. While radio evangelists like Charles Coughlin were certainly beating the drum for Hitler to a wide audience, just as large groups protested in US major cities throughout the early 1930s. I know ZH readers like to paint the New Deal as completely ineffective - but a lot of people were too busy building roads and national parks to be too concerned about the Third Reich.

My point is that there were more than economic causes for Weimar hyperinflation. There were also unique historical reasons which make comparing Weimar to the US now a bit of a stretch.

Even talking about the Weimar "central government" needs a few qualifiers. This was a shaky coalition that did not have much of a choice when if came to creating stability and employment. 'Refuse' is not a word I would use.

In this analysis I am still going to side with J. Freiherr Kruedener, who stated, "It was no so much the objective result of the depreciation of the currency up to 1922, especially the consequences of its distribution, but rather, its subjective effect, and above all its effects on everyday life in the wild year 1923 [ie touched off by the Ruhr crisis], which allowed to come into being the trauma which for a long time afterwards narrowed the scope for decision-making in German economic and financial policy."

why am I harping on this? because I observe a decent amount of history re-writing on ZH - especially when it comes to throwing around Weimar.

Americans are obese and malnourished, simultaneously! Millions commute for an hour or more. Families are separated and neighbors hardly know each other. There is every sort of previously unimaginable addiction. Individuals that need the pharma will go without and become unhinged.

How do you ration what will diminish in availability because it just isn't produced inside US borders anymore? All those "essentials" won't be available, not to mention life-sustaining materials.

How, Mr. Lira, how do you avoid mass starvation? What set of unprecedented inputs do you include in your analysis and what progression of events do you envision to reach your irrational conclusion that we will "make it through"?

No, we won't make it through. The Neanderthals will be safe and well fed, however. Their seed will be passed on. Ironic, no? Do you happen to have a PhD, Mr. Lira?

This one is too easy to answer! There are 2.2 MILLION farms in the US. The average farm is 400 ACRES! I don't think starvation for the entire population is in the cards unless there is some climate catastrophe or nuclear war!

Then the dollar menu becomes the 3 dollar menu, and the barter system/black market thrives! Gas more than tripled in price before, and my McDonalds Double Cheeseburger price stayed the same!

Fortunately for the US, we export a shit-load wheat and corn to nations that dictate/control oil. If I was a gambling man, I would bet that we need oil less than they need food!

Also, don't forget that the dollar is the reserve currency. Not too many countries, if any, will survive the type of dollar crash we are talking about here. Luckily for us here on the mainland, we have resources!

Yes, and to prop up food prices during the depression they dumped milk and slaughtered pigs and burned the carcasses. Farmers dumped trucks full of oranges in the fields and poured oil over them so that they were inedible and there were people going hungry. There is a famous picture of a dirty-faced skinny woman sitting with her two dirty skinny little girls hanging on her, and she told the photographer that they had been trying to dig frozen turnips out of a field for something to eat.

did you know that KROGERs has a policy of throwing away, not giving to poor or homeless, any fruit that might just have a nick, cut or bruise from a customers finger nail or key. they constantly go through all fruit or other fresh produce and just throw it away. company policy throughout all of their chains, king soopers, city markets etc. supposedly health reasons. boxes of pears a day.

According to O. Parssons, (google him if you never heard of him) Germany, from the end of the war to the end of the inflationary period only paid 2.4B gold marks as reparations, which was just about 5% of one-years GDP. Reparations was not the catalyst for Germany's hyperinflation.

No, the people here, the vast majority will be the one's snagging real estate for pennies on the buck.Or, if smart, leaving enmasse............no one want's a Chavezite Gv't here, after HIS scenario, Here, there would be a Civil War.

Many people did not follow him, they knew what he was, and his agenda,that's why the Brownshirts, and the SS were formed.

To drag away the non participants in the lie.

They will be the one's with Gold & Silver in HAND.

They will be the one's that stocked up, and looked ahead.

WE see the signs.

Anyone who does not prepare for this, even the remote CHANCE for it, is a Fool.

And will deserve what hit's them, sadly their families will not,but they will be the recipients of a severe fudgepacking.

junked you on account i am german in the USA since age 12 in 63. Been in the US army. Willing to fight for this country, protect you and yours, would share my food with you and never care where you are from.

So you would shoot me , your neighbor more or less? Where are you from...

Jews presently run and ruin our country. They have hurt our country repeatedly as well as other countries. There are jews in my community and they are welcome in my house. It aint the race dude, its the character.

Does this mean you wouldn't let her? Or does it mean, I don't mean to be rude, that she is not the type to do it, or cannot do it, or make a market for her services (lacks skill set or how she presents herself)? You would be shocked at the people who can make a living in this manner. If you can suck, you can make a buck.

"Does this mean you wouldn't let her? Or does it mean, I don't mean to be rude, that she is not the type to do it, or cannot do it, or make a market for her services (lacks skill set or how she presents herself)? You would be shocked at the people who can make a living in this manner. If you can suck, you can make a buck."

Only if you can enjoy it too - you little MsCreant. I'm sorry if I scared you.

fwitw - If I was left with the choice of having to prostitute myself out to woman for food, or cigarettes, I would have to do it.

The anti-democracy power elite of Germany who backed Hitler and fascist gangs from the very beginning engineered the collapse of Weimar. Hyperinflation was the byproduct of loss of faith in the currency AND the government.

The power elite were the old German aristocracy, still very much in power, still holding land and controlling industry , with most Germans working for them as poor tenant farmers since feudal times. There had never been anything but aristocratic rule in Germany for centuries until 1919, just 4 years before the start of hyperinflation. There had never even been a nation known as Germany until the German Empire in 1871.

The threat to the elite was the communist insurgency in Germany of 1918-1919 which threatened to seize aristocratic property. Entire regions of Germany became communist. The aristocrats wanted to end democracy and all threats to their power and wealth. They wanted a return to the old ways. Hitler played into their game with radical anti-democratic ideals and anti-communism. He used his armed gangs. Regular people elected him out of fear, confusion and a belief that democracy can't succeed.

He was backed by the farmers, the industrial workers and the provinces. Derided by urban sophisticates (like Berliners) as the "bavarian corporal", he rose from the blue collar beer halls. His anti-semitism was in part anti-bank (Jewish families were prominent in banking then) and pre-dated by his anti-communist, anti-socialist, anti-intelluctal, anti-liberal, anti-immigrant, anti-handicapped and homophobic rantings.

Yep, you cant ignore the Civil War which followed the end of WW1. Communist revolutions occured in several parts of Germany (Kiel revolts, Spartacist revolt in Berlin, Munich Soviet, Red Army of the Ruhr) whose stated goal was to wipe out the middle class along with the power elite- mass arrests of anyone deemed bourgoise were not uncommon and in Munich there were quite a few executions. The issues were not just monetary, there were political and cultural divisions too big to ignore.

This is also the case here in the US, this is of course a financial site and there is a definite tendency to see events through a prism of charts and graphs but the larger social picture cant be ignored. The readership here amongst Americans has a definite urban and northeastern slant, but don't forget there are tens of millions of heavily armed people below the Mason Dixon who don't want to share a country with the likes of New York, Massachusetts, Illinois, and California under the best of circumstances. The only thing holding this country together has been a mutual liking of having lots of things and cool toys- once the financial system unwinds and that disappears I fully expect secession and I dont think the northeastern and left coast urbanites will be able to do a thing about it.

What was so bad about Hitler compared to all the other leaders back then? He didn't do anything the rest of them wouldn't and didn't do. Germany wanted rid of their banking clan and all their cousins. Had Ben Gurion not been interested in making a political play for international recognition, they all would have moved to palestine.

Now, it turns out that Germany has a saner fiscal posture and policy, is not a warmongering imperial nation, they've gotten back to essentially protestant values of work and community. They are one of the pillars of stability now in the world. Nations with large tribe contingents are still warmongering and running confetti ponzis.

I mean, how many Germans did WE kill? How many did the Soviets? It was bad to be a polish woman during any part of this war, and the Soviets invaded, occupied and pillaged most of eastern europe for 40 years after the war. Looking at the relative carnage, Hitler just doesn't make the grade as far as psychopathic dictators go, not compared to some of his contemporaries and many others throughout history.

Master, beware that a global reserve currency bust might take out all paper currencies. Otherwise, hard assets would be converted into ever-decreasing-value paper holdings. Gresham's Law will kick in big time and all good money will be held while the trash circulates. A look a Twigg's Money Flow indicator shows outflows from all global bourses, except India right now. The whole world's stock markets are moving like one, following the pressure of the global reserve currency. Your only alternative is PM.

The deck is stacked against us. I don't put it past them to confiscate our gold and silver in the near future. We are in trouble in three areas, (energy, economy and the environment), any one of which can cause serious problems all three can send us back to the dark ages. Ideological subversion is alive and well in our government as well as in Wall Street. Most people nowadays are told black is white and believe it. How else can you explain how the majority of people believe the government’s explanation of the collapse of WTC building 7 being caused by an ordinary fire, when concrete is turned to dust, steel to molten metal, and the building coming down at free fall speed. Weapons of mass destruction, the illegal alien mess, and the Federal Reserve are just more of the same. Do you think do you think The Zeitgeist Movement and the Venus Project offer a viable solution?

SWR, I followed your comments over at KD's site and found I usually agreed with you. That was a prescient article especially for it's time. 2 trillion stands on the Fed's balance sheet currently, add another $4 trillion and we do in fact arrive at $6 trillion. But that is most likely a low estimate, they will in fact be forced to further devalue the dollar, probably until it just snaps one day in a crisis of confidence. Again, you have stated this over and over in KD's site. Kudos. ABS Control Module

SWR, I followed your comments over at KD's site and found I usually agreed with you. That was a prescient article especially for it's time. 2 trillion stands on the Fed's balance sheet currently, add another $4 trillion and we do in fact arrive at $6 trillion. But that is most likely a low estimate, they will in fact be forced to further devalue the dollar, probably until it just snaps one day in a crisis of confidence. Again, you have stated this over and over in KD's site. Kudos. ABS Control Module

Bernanke printed money in late 08 to temporarly stop hyperinflation because if the economy crashed that bad, there would be no tax revenue to service the treaury market. Treasury selloff=dollar selloff=hyperinflation.

Reread those definitions Johnny Bravo. Hyperinflation is not an inflation on steroids. It is a loss of faith in the currency and a dumping of that currency for anything else solid. Printing money could be a strategy in the short term to restore faith. Printing money could also result in spooking folks. Context.

You've reached the last boss of Zerohedge, JB, and you've won! Now, it's time to put Childish things away, and go do something productive. Go talk to the neighbors about the weather. Go join a charitable organization. Go plant a tree. Whatever you want, just GO.

All it has presently is our stranglehold on the House of Saud and our occupation of the ME. Neither of these is immutable.

Perhaps we will see a roman-esque multicentury decline, but that's anybody's guess. But the fact that the FRN is reserve is meaningless. It has no value beyond confidence in it and our military extortion racket.

As WW2 proved, nations can rise from poverty to world military power in relatively short timeframes. A few better strategic concessions here or there and the Axis powers could have easily avoided destruction.

ALL paper currencies go to zero; this is an axiom. The Pound Sterling...you know why it's called that, right? It's what it originally was. READ it. Now tell me how much sterling a GBP fetches today. It went from reserve to not, has survived the death of the Empire, depressions, bubbles' bursting, etc., sure it's still worth something, but it ain't buying you no pound of sterling anymore.

The US had serious inflations, including the Continental of the Revolutionary War, the Greenbacks of the Civil War and Carter/Nixon's Iran/Price and Wage Controls. None ended the regime in hyperinflation, although a lot of true believers in gold lost a lot of money.

I've called pretty much every directional action in the price. (I even called this new bull ru in it, but it went higher than I said it would. It hit the 61.8 fib instead of the 50 fib) If you can't understand the difference between short term and long term, what else is there to say?

I like how you only show up to repost my old posts (that will be proven right) or to bash the Jews (as is the case on Mish's board).

When banks eventually write off bad mortgages and go broke, stiffing depositors, with further collapsing tax reveues and insolvent FDIC, GSEs, OPIC, PBGC, SIPC as well as the Social Security Trust, that will be deflation with a capital D, as in Depression, when few may be able to afford a chicken, let alone an egg.

The wealthy may have some chicken coops like Frank Perdue. The rest may be free range gleaning homesteaders.

Welcome back to the Wild West Days, when Brinks and Wells Fargo moved gold coin payrolls by ship, stage or rail and were robbed or sunk...